Namibia has received requests from 12 countries to enter into tax treaty negotiations, this comes at a time when Treasury conceded that the existing 11 treaties do not benefit the country.
Tax treaties are legal agreements between two countries that identify the treatment of income, profits, or gains that are subject to tax in both countries.
The aim of tax treaties is to prevent double taxation. Thus two countries divide up and limit each other’s taxing rights. With regards to large multi-national companies, only one country may tax the profits. Tax treaties stay in place until they are renegotiated or terminated.
There are fears that the agreements-especially those with countries that are considered as tax havens-could jeopardise Namibia’s tax revenue streams.
Tax Havens (sometimes called tax shelters, secrecy jurisdictions, international financial centres, or simply offshore) are the hubs of a growing shadow economy of unregulated global capital.
In the last 10 years (and particularly since the global financial crisis) Tax Havens have emerged as a wildly popular destination for big banks, multinational corporations, the super wealthy and their armies of lawyers and accountants. A recent study by James Henry of the Tax Justice Network estimates that $21 to $32 trillion is now invested in tax havens. This is equal to the combined annual output of the USA and Japan combined.
Namibia has entered into 11 Double Taxation Treaties or double Taxation Agreements (DTAs) with the following countries; Botswana, France, Germany, India, Malaysia, Mauritius, Romania, Russian Federation, South Africa, Sweden and the United Kingdom. Many of these agreements were concluded early 2000.
While responding to detailed questions from The Patriot, Treasury revealed that countries such as Canada, Egypt, Portugal, Qatar, Republic of Cyprus, Seychelles, The Kingdom of Lesotho, The Kingdom of Spain, The Netherlands, The United Arab Emirates (UAE), Zambia and Zimbabwe have sent requests to engage into tax treaty negotiations. Hoardes of Spanish-owned fishing companies currently pay taxes to government, therefore, if Namibia fails to negotiate for a good deal with Spain during the imminent negotiations, billions in taxes could be shipped to the European state. Currently more than 10 Namibian-Spanish joint ventures operate in Walvis Bay such as fishing giant Pescanova. All these multinationals could benefit handsomely, if the negotiations are in favour of the Spanish authorities during the upcoming negotiations.
Tax Commissioner Justus Mwafongwe said Namibia does not benefit from the current Double Taxation Agreement’s (DTA).
Namibia’s tax revenue has been dwindling over the years, a situation that has placed government in a predicament when it comes to the availability of financial resources to fight poverty in the country.
If Mwafongwe is to be believed however, skewed DTA’s that are non-beneficial to Namibia will soon be a thing of the past.
“Our approach to rectifying this anomaly has been to first develop the tax treaty national policy which we have successfully finalised. The objective of the national policy is to provide a uniform framework for the negotiation of DTA’s through a Namibia DTA Model Agreement. This model agreement will not only be used as blue print to renegotiate the existing DTA’s but will also be used for any new DTA which may be concluded,” he said.
Mwafongwe said Treasury does not have an approximate value to define revenue loss through tax treaties.
He added: “However we are trying to close all the gaps or applicable loopholes to ensure that no revenue loss is experienced through tax treaty agreement in the future.” The tax commissioner also indicated that engagements to renegotiate existing treaties with countries that Namibia has DTA’s with, are already underway.
This, Mwafongwe says, is to align the agreements to Namibia’s national tax policy on treaty negotiation to ensure that the Namibian tax base and revenue is protected whilst promoting foreign investments. “A Task Team has been established to deal with negotiation or re-negotiation of DTA’s in line with Namibia DTA policy. Countries that are ready for negotiation/re-negotiation include Mauritius and Zimbabwe. The first round of negation is expected to take place during the first quarter of next year (2018),” he said. Through the Finance and Investment Protocol of the Southern Africa Development Community (SADC), SADC also developed and adopted a Double Taxation Agreement (DTA) model in 2010 with expectation that SADC member states align theirs to the SADC model. The objective is to enhance economic relations and endeavour to minimise harmful tax competition among member states as well as to guide member states in their future negotiations. Right now, big foreign companies are avoiding paying millions of dollars in tax, depriving ordinary people of vital services.
Other countries who have made the same agreement with Mauritius have started to heavily criticise the terms, because they increase the opportunities for big foreign companies to dodge paying their taxes.
Tax experts claim that Double Taxation Treaties creates loopholes for tax evasion and avoidance and is exploited by companies that undertake ‘treaty shopping’ which deny countries of much-needed tax income, especially in the developing world.
Local critics of DTA’s called on government to reconsider the country’s taxing rights as contained in the domestic tax legislation including the imposition of withholding tax on technical and management fees and other areas of the treaty that could undermine our tax revenue base.
Treaties with Mauritius have started to come under severe criticism by tax authorities of other countries for abuses by companies.
Last year while delivering a speech at Columbia University in the United States of America, President Hage Geingob expressed concern over tax havens, saying they are causing trouble in Africa. Geingob was asked by a student during his public lecture about Namibia’s situation regarding illicit financial flows, and what his government is doing regarding dirty money.
“These tax havens are the ones that are causing trouble in Africa. I was talking in Washington about illicit outflows of money, African money from mines and so on – billions,” he said. “Maybe they (tax havens) were meant for a good purpose that time, but now it is to hide stolen goods, and I don’t support it,” he said.